The pricing is extremely aggressive, with a 1.8% transaction fee and a 15 cent per transaction charge for transactions processed through the terminal. Square charges 2.75% with no per transaction fee. PayPal Here and Verifone Sail charge 2.7%, also with no transaction fee. Groupon is charging 2.3% for AmEx transactions [update: a groupon insider tells me the AmEx pricing is 2.7, not 2.3]. Square and PayPal don’t charge extra, and Sail charges 3.7% for AmEx.

While he doesn't share the actual email, he says it hints at a PoS system for iPod and iPad, and says it's already in use in "several places in the Bay Area".

I wonder if any businesses in Groupon's hometown of Chicago are using it.

So far, Groupon is not talking about the product.

Bloomberg BusinessWeek has some additional information, however. According to the publication's Douglas MacMillan, the reader is manufactured by Infinite Peripherals, and that it plugs into the headphone jack of a smartphone. According to that report, it's being tested by "dozens" of businesses in the Bay Area. McMillan's source also says that Groupon collects a fee of "less than 3%" on each transaction.

Groupon appears to be entering an increasingly competitive market, facing off against some more experienced (in the payments realm) foes, namely Square and PayPal. Groupon could have the deals brand leverage to make something like this work though. It will be interesting to see how it plays out.